A Day of Day Trading – Techniques for Success
Successful trading is hard work. Each trading day’s preparation begins at closing time the day before. The more research you can finish the day before, the more successful and confident you will be before the market opens.
Develop a Market Bias
Once the market closes, active traders will take a final assessment of the market’s internals: TICK, TRIN, New Lows, VIX, etc. Then he marks support/resistance levels on the major market induces with horizontal lines that can be seen on the following day’s charts. He does the same for the major market sectors. Are there any buy or sell set ups? Do the market internals confirm or conflict with these set ups?
Scan News and Update Watch Lists
This time is used for discovering any potentially market moving news being reported after the bell or scheduled for the following morning, such as earnings releases or government reports. Watch Lists are then updated and pruned. Buy and sell set ups are moved to the tier 1 watch list and earnings release dates are entered. Open trades that are not long term and profitable will be closed before earnings releases. No new trades will be enter before an earnings release. No gambling.
It’s quitting time. Time to live a balanced life for the rest of the day.
Pre Market Chart Analysis
Professional day traders get to work one to two hours before the market opens. One of the first things on the do list is to pull up charts of the NASDAQ, S&P, and DOW futures and mark overnight support/resistance areas. These areas are used to determine bullish/bearish biases. Has the bias changed since the day before? Has the trend changed? Have any potential buy/sell set ups failed or developed? Is the opening going to gap up, down, or be flat? This is the time to plan for alternate scenarios.
Scan the News
Are there any fresh trading opportunities for the tier 1 watch list? Most online news provide most active, gainer, and losers lists. News headlines can provide potential catalysts for sectors and market leaders. The Nasdaq.com Heat Map is another quick way to find % losers and gainers for stocks and sectors. The CNBC ticker tape is a good source for fresh pre market ideas.
New additions are made to the watch lists. Open positions are checked for disaster gaps and if so, contingency plans are made to reduce the damage. Tier 1 stocks are narrowed down to a bullish and bearish hot list. Trading plans are mapped out for each potential trade by determining entries, stops losses, share size, and targets. Earnings dates are checked.
Time to relax, stretch, or get some coffee or juice. Preparation now is complete.
First Five Minutes after the Bell
Open positions are managed as planned and the market is observed. Which are the strong and weak sectors and which stocks are the market leaders? Internals are monitored for confirmation. The five minute highs and lows of the three major market induces are marked. Odds are determined for a 30 minute bullish or bearish follow through. Best set ups are chosen and executed. Now its trade management time. Stops are trailed. Profits are taken.
After 30 minutes, the trader’s market bias is reassessed based upon analysis of market internals, support/resistance areas, and price patterns. New trades may be entered until the the afternoon doldrums, which occurs between 11:30 a.m. and 2:00 p.m. EST, give or take a few minutes. New trades are avoided during this time, because of lower volume and lower odds for follow through. Its time to do research, relax, or take a lunch break.
After the Doldrums Until the Close
Open trades are managed as planned and the Hot List is monitored for new trades to trigger entry signals. Internals, induces, sectors, and market leaders are monitored continuously. All day trades must be closed between 3:45 and 3:50 p.m. EST. All closed trades are entered into the trading journal and trading diary All open swing and longer term trades are updated as to stop loss changes and profits taken.
Begin to prepare for the next trading day.